Three businessmen walk past a labourer resting on a bicycle in Beijing. (David Gray/Reuters)

Not so long ago, wealthy Chinese would keep the price tags dangling off their sunglasses, wear their ties back to front to display the designer label and celebrate every business deal with that showiest of French wines, Chateau Lafite Rothschild Bordeaux, sometimes mixed with Coca Cola. They also had a reputation for being daft with their money, buying highly leveraged structured derivatives from Hong Kong private banks that offered eye popping returns or unlimited losses. They were known as the bao fa hu (暴发户) which translates as "newly rich" or "upstart" (one of a number of Chinese modern stereotypes).

That image is so 2009. Today's upmarket Chinese consumer is hiding his wealth -- for now. The reason is partly political. China's top leadership will change next year, and with it, a lot of people's fortunes. Meanwhile, having lost heavily on derivatives during the autumn 2008 stock market crash, China's wealthy elite are also taking a sensible approach to banking. And they are even experimenting with less obvious wine brands.

"Many Chinese business people got their money honestly, but now they do not want the scrutiny and attention that comes from displaying wealth," says Sunny Wong Yat Ming, managing director of Trinity Holding International, a Hong Kong-listed company that owns the Cerruti 1881 and Gieves & Hawkes brands.

The super rich are going underground, as political power shifts in unknown directions. Since former Chongqing party chief Bo Xilai was dramatically forced out of his post and expelled from the party, and because China's top leadership is changing, it is no longer smart to show off wealth. China is run on so-called "guanxi" (关系 ) which means "relationship" and, for business leaders, means that if you are protected by the right powerful official you can flaunt your wealth and status. Now, not only are the tectonic plates of political power shifting, no one is quite sure what the results will be. The bao fa hu are, quite literally, in hiding.

Not everyone is avoiding the limelight. China's luxury market can be split into three groups, says Paul French, chief China market strategist for Mintel:

You have the secretaries who can only afford a handbag, then the provincial new money types who are just discovering luxury and want to dress head to toe in Louis Vuitton -- the Shanghainese call these people "potato dumplings." Then there is this smaller, harder to define group right at the top. Everyone wants these customers as they have most of the money. But they are becoming more aware of being caught out for something by the [Communist] party disciplinarians or outed for extreme wealth on the internet.

A joke often told by Hong Kong residents about rich mainland Chinese tourists goes along the lines of: "They must sell superglue in designer stores so these mainlanders can cover themselves in it and roll around the shop." The joke conjures up a stereotypical image of a mainland Chinese man wearing one brand only, very visibly, from head to toe. But at the very top end of the income ladder, this joke is dated. Now it only applies to potato dumplings.

But the richest group still favors discreet luxury. China's wealthiest are extremely unlikely to stop buying high-end designer goods. But brands that are very established now in China are not doing quite as well as less blingy, more bespoke, labels. Burberry and Louis Vuitton are being challenged (paywall) by Gieves & Hawkes.

"One thing I've noticed recently in Shanghai is very wealthy people are increasingly wearing Brioni suits," says David Lin, who is Taiwanese and runs Whitesun Equity Partners, a buyout house focusing on Chinese consumer industries with offices in Taipei and Shanghai. He is referring to the Italian designer Brioni, whose suits can cost tens of thousands of dollars yet, according to Lin, is still "not a brand that makes it obvious you are wearing their brand."

The Chinese value scarcity. As Trinity's Wong adds, the super elite "have moved beyond expensive but widely available brands to names that are associated with scarcity."

Such labels would include Hermès, which as this paper from INSEAD outlines, "Even when it is unable to meet market demand for its iconic Kelly bag, Hermès prefers not to expand production."

And because China is not a place where environmental concerns are high on the agenda, limited-edition designer bags made out of rare animal skins are always a hit, adds French. If a designer retailer "found the very last Yangtze River alligator and made a handbag out of it, this high-up group would want it," he says.

They buy financial products sensibly. From "I kill you later" to "make my money last, please".
Before the autumn 2008 stock market crash, a wickedly complex product called an "accumulator" was sold widely by Hong Kong private banks to wealthy mainland Chinese customers. The accumulator gained the nickname, "I kill you later." It was a highly leveraged structured derivative whose value depended on the price of an underlying security. When the security rose, the accumulator rose more. And when it fell, losses were extremely heavy. The Bao Fa Hu licked their wounds and stopped buying such things.

"The appetite for heavily leveraged products is much reduced, " says Keith Pogson, Ernst & Young's managing partner for financial services across the Asia Pacific region."The wealthy Chinese have become a lot more sophisticated, in the most part. Since the 2008-9 financial crisis, this appetite for exotic products backed away."

Popular right now, Pogson says, is the "discretionary mandate." This is a product that simply involves the rich person handing his entire nest egg to an investment manager in a private bank, who does his best to invest it broadly and sensibly and not to lose it.

China's one-child policy has also influenced the move to sensible banking, French says. "The early entrepreneurs are getting old. They have only one child. If that child is not interested in or incapable of continuing the business, you have to list or sell the business and stash the money somewhere it can grow to keep your family rich for two to three generations."

The leadership shift in China is convincing the wealthy elite to manage their money better too, French adds. "There is a sense that the period in China of just being able to accumulate vast sums of money is coming to an end. Someone in the party might even take your business away."

And they are -- very slowly -- starting to sip American wines. Demand for Chateau Lafite has been feverish in China for several years. And Chinese counterfeiters have been doing a brisk trade in "Chateau Lafake" too. Still, green shoots of diversity are apparent. This paper from Wharton outlines how the Chinese are beginning to sample US wines.

"You have seen a growing sophistication in alcohol consumption," says Whitesun's Lin. "People are moving on from heavy cognacs to wine. And from Chateau Lafite to other brands. But not too far. At private dinners, say the hosts serves four wines, one will usually be Lafite and the other probably Petrus. The others could be less well known. But it is seen as important to show the guests you have spent money on them."

As Decanter reports here, wine in China is not really purchased for drinking, but to impress business associates. So it may be some time before the new trend for understated luxury buying hits the alcohol market.

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